Disadvantages of Business Combination
The business combination is a method of economic organization by which a common control of greater or lesser completers is exercised over a number of firms which either one operating in competition or independently.
Competition among business organization is decreased by formation of the business combination. Business combination has not only advantages but also some disadvantages. The fundamental disadvantages of the business combination are discussed below.
The disadvantages of Business Combination are discussed as follows:
Excessive Capital: For business combination capital of every business organization that combines will be increased. Sometimes that capital may be excess than necessary, in this time managers cannot invest the excess capital properly. Then the capital expenses of the organization will be increased. Then the profit ratio of shareholders may be decreased.
The rise of Monopoly Business: The motive behind forming a business combination is to maximize profit by way of exerting monopoly influence in the market. It tends to be monopolistic and is thus; enable to make a profit by charging prices which have no reasonable relationship to costs. Some business combinations accomplish this anti-social object of profit maximization because they are alone in the industry.
Complexities in Management and administration: For the combination of business the area of business is expanded then to conduct the business properly by management becomes impossible. It creates various types of problems such as- lacking of co-ordination, lateness in decision making etc.
Increasing the Product Price: For business, combination organizations try to create monopoly market. So competitor cannot exist in the market. Then the combination for the price of their product at a high price. Customers fall in problems to buy the product at a high price.
Exploitation of Labor: The business organizations which are the member of combination control a specific site of industries then sometimes they exploit the laborer. Because the laborers have no way to change their profession. Then the laborer must do work at a low ways and they do not get any facilities from the combination.
Reduction of Efficiency: Main objective of forming business combination is to create monopoly market. Then these business organizations do not try to involve new products, social welfare and do not reduce the unnecessary wastage of resources. For this reason, the business combination cannot carry out their success for a long time.
Accumulation of Wealth: For business, combination competition will be reduced. The combination creates a monopoly market then the profit may be centralized among some people. As a result, most of the people will be affected by this process and wealth will accumulate by some people only.
Preventing Entrance of new Competitors: By forming business combination business organizations become stronger than other individual organization. They control the market and they always try to capture the whole market and prevent the new competitors to enter into the market by unfair practices.
Creating Social Problems: Another disadvantage of the business combination is its tendency to short-sighted selfishness. Some of the business combination operates in an anti-social and a dishonest way. They evade taxes following a devious method of book-keeping. They adapt to anti-labor attitude, which results in labor unrest.
At last, we can say that business combination like other forms of organization is not an unmixed blessing. It has above-discussed disadvantages for which people sometimes angry about the business combination. So to be successful as a combination they must remember these advantages.